Resource Mobility and Market Performance

Resource mobility refers to the ability of resources to move from one place to another. This can include physical resources such as natural resources and people, as well as intangible resources such as information and ideas.

The mobility of resources is essential for market performance and economic growth, as it allows for the efficient allocation of resources and the development of new markets.

However, resource mobility can also have negative impacts, such as the depletion of natural resources and the displacement of people. Hence, it is important to carefully assess the impacts of resource mobility and to develop policies and regulations that ensure its sustainable and equitable use.

In this study, the authors consider a renewable mobile resource that is jointly exploited by oligopolistic firms and analyze the impact of resource mobility on market performance. Examples of renewable mobile resources include migrating fish, such as tuna and billfish, wildlife, such as deer and waterfowl, and groundwater. The focus of the analysis is on economic efficiency, with welfare being defined as the sum of consumer’s and producer’s surplus.

Governments can impact the mobility of a renewable resource in a variety of ways.

In the realm of commercial fisheries, for instance, the government can impact fish mobility in a variety of ways, including fish passage requirements, habitat protection, water management regulations and international agreements.

Related literature

This study extends previous works on oligopoly exploitation of renewable resources. In particular, it extends the paper by the same authors published in Journal of Mathematical Economics in 2013, by introducing resource mobility.

This study is also connected to two other streams of literature, namely, the literature on two-species fisheries and the literature on transboundary pollution. The former assumes that the evolution of one species depends not only on fishing activities but also on biological interactions between the two species. In a similar way, in the model developed in this study, it is assumed that the evolution of firm i’s resource stock depends not only on firm i’s exploitation rate, but also on the rate at which the resource flows/migrates. The latter focusses on the negative spatial externalities that a polluting country imposes on the neighboring countries. Similarly, in the model developed in this study, stock externalities are considered, which stem from the lack of well-defined property rights on mobile resources.

Main Results

This study demonstrates that, over the entire planning horizon, resource mobility is beneficial to firms. However, resource mobility is shown to hurt consumers. Clearly, while firms would favor policies aimed at increasing resource mobility, consumers would oppose them. A natural question then arises. Should forward-looking welfare-maximizing policymakers increase or decrease resource mobility?

Forward-looking governments seeking to maximize social welfare over the entire planning horizon should eliminate or at least reduce the mobility of a renewable resource.

Indeed, one of the main findings of this study is that, over the entire planning horizon, a small increase in resource mobility (starting from a position of no resource mobility) is detrimental to welfare: the decrease in consumer’s surplus outweighs the increase in producer’s surplus.

Resource mobility is socially beneficial only in the short run. In the short run, producer’s surplus may either increase or decrease, depending on the initial resource stock, while consumer’s surplus increases, and the increase in short-run consumer’s surplus outweighs the change in producer’s surplus.

In the long run, instead, producer’s surplus increases, while consumer’s surplus decreases, resulting in a decrease in welfare.

In conclusion, the impact on welfare of an increase in resource mobility is positive in the short run and negative in the long run, and negative when considering the entire planning horizon.

Methodology

The analysis is conducted in terms of a differential game. As is well-known, differential games are particularly useful for modeling economic problems which involve both dynamics and strategic behavior. Specifically, the authors analyze an infinite-horizon differential Cournot game (i.e., a game where oligopolistic firms choose quantity levels simultaneously and noncooperatively) where production requires exploitation of a renewable mobile resource. Resource mobility is captured by a parameter in the differential equation governing the evolution of the resource stock. The equilibrium concept used in this study is Markov (feedback) Perfect Nash Equilibrium.

Applications and beneficiaries

The results of this research have clear policy implications for the management and regulation of resource industries. The main policy implication is that a welfare-maximizing policymaker should implement policies aimed at eliminating resource mobility. In the presence of resource mobility, property rights over the resource are clearly not well-defined. The associated stock externalities lead to an inefficient outcome. However, this result is not necessarily to be expected. Indeed, in this study, the lack of property rights coexists with market power (i.e., the ability of firms to raise the price above the marginal cost), and as is well-known from the theory of second best, when there are two sources of inefficiency, reducing or eliminating one is not necessarily welfare-enhancing. This research is innovative and may possibly serve to guide decision making for resource utilization. Beyond policymakers and legislators, it may genuinely benefit strategic C-level decision makers in production industries, NGOs, political activists, those concerned with corporate responsibility and academics.

Reference to the research

Luca Colombo, Paola Labrecciosa, “Resource Mobility and Market Performance”, Dynamic Games and Applications, Vol. 14, March 2024, pages 78-96.

Consult the research paper